Principles of Management

Foundations
Of
Planning
After Studying “FOUNDATION OF PLANNING” students will be
able to:

• Define planning.
• Explore why planning is important.
• Contrast approaches to goal setting and planning.
• Set goals according to SMART criteria.
• Analyze and conduct the SWOT analysis.
• Describe the vital role played by strategy implementation in
determining managers ability to achieve an organization’s
mission and goals.
• Assess importance of scenario planning.
• Design personal professional development plan.
• Develop plan by giving their own idea of any event and
present their idea through plan.
 Planning

Defining an organization's goals, establish an

overall strategy for achieving those goals, and
developing plans to integrate and coordinate
work activities.
• Planning
• A primary managerial activity that involves:
• Defining the organization’s goals
• Establishing an overall strategy for achieving those goals
• Developing plans for organizational work activities.
• Types of planning
• Informal: not written down, short-term focus; specific to an
organizational unit.
• Formal: written, specific, and long-term focus, involves
shared goals for the organization.
Why Do Managers Plan?

• Purposes of Planning
• Provides direction
• Reduces uncertainty
• Minimizes waste and redundancy
• Sets the standards for controlling
Elements of Planning

• Goals (also Objectives)

• Desired outcomes for individuals, groups, or entire
organizations
• Provide direction and evaluation performance criteria
• Plans
• Documents that outline how goals are to be accomplished
• Describe how resources are to be allocated and establish
activity schedules
Types of Goals

• Financial Goals
• Are related to the expected internal financial performance of the
organization.
• Strategic Goals
• Are related to the performance of the firm relative to factors in
its external environment (e.g., competitors).
• Stated Goals versus Real Goals
• Broadly-worded official statements of the organization
(intended for public consumption) that may be irrelevant to its
real goals (what actually goes on in the organization).
Types of Plans
Planning
Process
Planning Process

Planning process consists of following steps

i. Goal setting
ii. Forecasting
iii. Strategy formation
iv. Setting specific standards
v. Continual review & revision
 1-Goal Setting

Goal setting is first step in planning

Process
Approaches of Goal Setting

Traditional goal setting

MBO
Traditional goal setting

An approach in which goals are set at the top level of an

organization and then broken-down into sub goals for each
level of the organization.
• Broad goals are set at the top of the organization.
• Goals are then broken into sub-goals for each organizational level.
• Assumes that top management knows best because they can see the “big
picture.”
• Goals are intended to direct, guide, and constrain from above.
• Goals lose clarity and focus as lower-level managers attempt to interpret and
define the goals for their areas of responsibility.
The Downside of Traditional Goal Setting
Management By Objective

MBO is a management system in which specific

performance goals are jointly determined by
employees and their managers, progress
towards accomplishing those goals is
periodically reviewed, and rewards are
allocated on the basis of this progress.
Steps in a Typical MBO Program

1. The organization’s overall objectives and strategies are

formulated.
2. Major objectives are allocated among divisional and
departmental units.
3. Unit managers collaboratively set specific objectives for their
units with their managers.
4. Specific objectives are collaboratively set with all department
members.
5. Action plans, defining how objectives are to be achieved, are
specified and agreed upon by managers and employees.
6. The action plans are implemented.
7. Progress toward objectives is periodically reviewed, and
feedback is provided.
8. Successful achievement of objectives is reinforced by
performance-based rewards.
Steps in Goals
Setting
Steps in Goals Setting

a. Review the organization’s mission

statement
b. Evaluate available resources
c. Determination of goals
d. Write down and communicate the goals
e. Review of results.
 a. Review the Organization’s Mission Statement

A mission statement is the purpose of an organization and it

provide an overall guideline to what organizational members
think is important.
A mission statement serves many purposes
a) For managers it is bench mark to evaluate success against.
b) For employees it defines a common purpose, bring up
organizational loyalty and foster sense of community for
workers.
c) For external parties such as investors, government
agencies and the public it helps provide unique insight
into the organization’s value and future direction.
 b. Evaluate Available Resources
Don’t set goals that are impossible to achieve within your given
resources. Even though goals should be challenging, they should be
realistic.
a) Financial Resources: means debt, equity, retain earnings and
selected matters.
b) Physical Resources: means building, machinery, vehicle and other
material.
c) Human Resource: includes skills, abilities, experience and other
work related characteristics of people associated with the
organization.
d) Organizational Resources: include the history of groups in the
organization, relationship, level of trust and associated culture
dimensions, as well as formal reporting structure, control system
and compensation system.
 c. Determination of Goals

Determine the goals individually or with input from others but these
goals should be

SMART
 SMART

S Specific
(in terms of outcomes)

M Measurable
(Quantifiable)

A Action oriented
(Contains plan of action)

R Realistic
(Not too small, nor too big)

T Time Bound
d. Write down and communicate the goals

A well designed goal should be written in terms of

results rather than actions, moreover the process of
writing the goals force people to think thoroughly
and make them committed.
Finally goals should also be communicated to all the
organizational members who need to know the goals.
Because making people aware of the goals ensures
that they all are “On the Same Page” and working in
ways to ensure the accomplishment of the
organizational goals.
 e. Review of Results

The last step of Goal setting is review of results to see whether

goals are being met and if change is needed to do so.
 2-Forcasting

Predictions of outcomes
Types

• Quantitative Forecasting
• Forecasting that applies a set of mathematical rules to
a series of past data to predict outcomes
• Qualitative Forecasting
• Forecasting that uses the judgment and opinions of
knowledgeable individuals to predict outcomes.
Developing Plans

• Contingency Factors in A Manager’s Planning

• Manager’s level in the organization
• Strategic plans at higher levels
• Operational plans at lower levels.
3-Strategy Formulation
 Strategy

A comprehensive action plan to accomplish

the organizational goals is called strategy.
Formulating Strategy

• Strategy Formulation
• Managers analyze the current situation to develop
strategies for achieving the mission.
• SWOT Analysis
A planning exercise in which managers identify:
• organizational strengths and weaknesses.
• Strengths (e.g., superior marketing skills)
• Weaknesses (e.g., outdated production facilities)
• External opportunities and threats.
• Opportunities (e.g., entry into new related markets).
• Threats (increased competition)
Strategy Formulation
 Level of Plan & Strategy Formulation
Concentration on a International
Corporate level Single Diversification Expansion Vertical integration

plan Business/Industry

Focused differentiation
Business level Low cost strategy Differentiation strategy Focused low cost strategy strategy
plan

Functional level Human Resource

Research &
Manufacture Finance
development
plan
3a.Formulating Corporate-Level Strategies

1. Concentration on a Single Business/Industry

Can become a strong competitor, but can be risky
2. Diversification
Expanding a company’s business operations into a new
industry in order to produce new kinds of valuable goods or
services
a.Related Diversification: into similar market areas to build upon
existing competencies.
b.Un Related Diversification: is entry into industries unrelated to
current business.
3a.Formulating Corporate-Level Strategies

3. International expansion
To what extent do we customize products and marketing for different
national conditions?
a.Global strategy
Selling the same standardized product and using the same basic marketing
approach in all countries.
 Standardization provides for lower production cost.
 Ignores national differences that local competitors can address to their
advantage.
b. Multi-domestic Strategy
Customizing products and marketing strategies to specific national conditions.
 Helps gain local market share.
 Raises production costs.
Integration

• Horizontal Integration
• Combining operations with another competitor in the same industry
(sometimes by acquiring or take over) to increase competitive strengths and
lower competition among industry rivals
3a.Formulating Corporate-Level Strategies

4.Vertical Integration
A strategy that allows an organization to
create value by producing its own inputs or
distributing its own products.
a. Backward vertical integration occurs when a firm seeks
to reduce its input costs by producing its own inputs.
b. Forward vertical integration occurs when a firm
distributes its outputs or products to lower distribution
costs and ensure the quality service to customers.
• A fully integrated firm faces the risk of bearing the full costs of an
industry-wide slowdown.
3b.Formulating Business-Level Strategies

1.Low cost strategy

Driving the organization’s total costs down below the total costs of rivals
2.Differentiation strategy
Distinguishing an organization’s products from the products of
competitors on dimensions such as product design, quality, or after-sales
service
3.Focused low cost strategy
Serving only one market segment and being the lowest-cost organization
serving that segment
4.Focused differentiation strategy
Serving only one market segment as the most differentiated organization
serving that segment
3c.Formulating Functional-Level Strategies

A plan that indicates how a function intends to

achieve its goals
• Seeks to have each department add value to a good
or service. Marketing, service, and production
functions can all add value to a good or service
through:
• Lowering the costs of providing the value in products.
• Adding new value to the product by differentiating.
• Functional strategies must fit with business level
strategies.
Implementing strategy

5 steps of strategy implementation:

1. Allocating responsibility for implementation to appropriate

individuals or groups.
2. Drafting detailed action plans that specify how a strategy to
be implemented.
3. Establishing a time table for implementation that includes
precise, measureable goals linked to the attainment of the
action plan.
4. Allocating resources to responsible person.
5. Holding specific individuals/group for attainment of
corporate, business and functional goals.
 Scenario planning
Scenario planning Preparing for unexpected

A scenario is a consistent view of

Identify potential unexpected
what the future is likely to be!!
events
The determination of alternative
Determine if any of these events
course of action to be taken if an
intended plan is unexpectedly would have early indicators.
disrupted or rendered
Set up an information gathering
inappropriate is called “Scenario
planning/contingency planning”. system to identify early indicators.
Have appropriate responses
Criticism:
(plans)in place if these unexpected
Difficult to forecast random events
events occur.
so not suitable when unexpected
events occur.
Contemporary Issues in
Planning
 Planning Issues
Barriers to effective planning
Demands on manager time
Ambiguous and uncertain
operating environments
Resistance to change
Overcoming the barriers to
planning
Learn to apply the managerial
functions better
Involve employees in decision
making
Take advantage of diversity of
views
Encourage strategic thinking